UK Energy Leaders — Losing Their Religion?

An odd but recurrent attribute of the waning months of any political administration is the self-incriminating re-examination of core precepts which flows from the lips of the hitherto devout. That process is well under way in the energy parishes of Gordon Brown’s Whitehall, but the free market unified field that has enveloped UK energy policy from Brown to Blair to Major to Thatcher may be shaking with more than just the usual tremors of self-doubt, remorse and regret.

The ramifications for the US are likely to be profound.

The most recent apostasy is last month’s energy security report from former Minister of State for Energy Malcolm Wicks. Under the banner heading, “Can market arrangements deliver an appropriate fuel mix?”, the Wicks report observes:

Many commentators argue that gas, the cheapest and quickest technology to install in significant mega-wattage, is likely to take an increasing share of the power generation market, to replace closing coal-fired stations, and also potentially some nuclear power stations in the middle of the next decade. These gas-fired power stations would then be a part of our power mix for decades afterwards…We would potentially be locking-in import-dependence at an uncomfortable level and have an unbalanced fuel mix leaving UK businesses and consumers highly exposed to future moves in international gas prices.

I believe that the Government needs to consider carefully whether there are cost-effective ways of avoiding this outcome. Effective demand reducing energy efficiency measures might be sufficient while extending the life of existing plant where feasible and legally permissible could also contribute, giving more time for the deployment of alternative generation technology including nuclear, with its long lead times. The Government and industry will wish to consider whether it needs to take a more strategic role in determining the fuel mix for power generation, perhaps within bands, to try to avoid a ‘dash for gas.’ If it did so, it would need to ensure that the regulatory and market structures provided sufficient assurance to operators that they would be able to sell the power that they generated to justify investment in non-fossil power-generation. This would be a significant move away from the ‘market knows best’ orthodoxy but it might be justified on energy security grounds. It would echo the welcome moves to ensure that sufficient renewables capacity is installed.

The Financial Times catalogued the most dirigiste of the recommendations, and the Tories zeroed in on Wicks’ recommendation that Britain triple its reliance on nuclear power from today’s 12-15% to 35-40% by 2030. “If companies want to build new nuclear plants without subsidy they are very welcome to do so, and we are clear that the UK is a very attractive place for new nuclear investment,” the shadow energy minister Charles Hendry said. “But if you set an aspiration like that, the danger is that the industry will say: ‘If you want that, we have to have a subsidy’.”

But the sacrilege seems to be gaining momentum. Former Tony Blair confidante Lord Browne of Madingley, the past CEO of British Petroleum who now serves as president of the Royal Academy of Engineering, is perhaps the most prominent heretic:

… we must fundamentally rethink the objective of energy policy in this country. Competition has been the guiding star of UK energy policy since the 1980s and it worked well while there was a surplus of energy infrastructure capacity. But price competition is now failing to deliver the new, more diversified infrastructure that we urgently need to bolster energy security and meet our climate change targets.

I remain convinced that the market is the most effective delivery unit available to society. But the market will need a new strategic direction, and a new framework of rules, laid down by government.

In an interview with the Guardian, Lord Browne compared the current need for urgent investment and new infrastructure with efforts to develop North Sea oil and gas fields in the 1970s and 1980s. “High oil prices provided a strong market pull. But governments also gave industry a helping hand, creating generous tax incentives and regulations, and helping to build strategic infrastructure,” he said. “There’s even more cause for government intervention today. That’s because energy security and climate change mitigation are public goods. They would not otherwise be recognised by the free market.” Browne said the UK risked being left behind in the global race to develop a low-carbon industry if ministers relied on market mechanisms such as carbon trading to drive change. “A lot of people say carbon trading, the European emissions trading scheme, will take care of this. In theory it can, but in practice it won’t.”

Historians will find it difficult to measure the relative efficacy of UK vs. US energy policy these past 35 years, and may well view the comparison as a race to the bottom denominated in squandered opportunities, abdication of responsibilities and willful avoidance of unpleasant facts. But the commonalities will outnumber the differences, which makes the current ecclesiastical unraveling in Britain so pertinent.

One Response to UK Energy Leaders — Losing Their Religion?

I find it hard to believe that wind farms being installed in the UK aren’t receiving some form of government subsidy. So an inefficient, unreliable, experimental source of energy gets money because it satisfies eco-guilt yet nuclear a proven, reliable, clean source gets nothing? What is going on?